The Pakistan Credit Rating Agency Limited
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Ayesha Qasim

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PACRA Maintains Entity Ratings of Apna Microfinance Bank Limited

Rating Type Entity
(10-Nov-17 )
(10-May-17 )
Action Maintain Downgrade
Long Term BBB BBB
Short Term A3 A3
Outlook Stable Stable
Rating Watch - -

The ratings of the bank reflect the sponsors’ demonstrated commitment to provide the requisite financial support. Lately, the bank’s profile has experienced stress due to weak asset quality. The management being cognizant of the situation, has been dedicatedly focusing on recoveries and has managed some success; disbursement of fresh lending also resumed. Previously expansion phase kept cost structure high, though lately it is being rationalized as the expansion activity has been completed. At the same time, acknowledgement of certain sizeable insurance claims would limit the drag of NPLs. Ensuing losses caused significant erosion in the bank’s equity base. Hence, making it non-compliant with minimum regulatory capital and adequacy requirements. Notably, sponsors have shown their commitment through plugging-in gap in requisite capital; PKR 200mln injected by end-Oct17 with equity reaching ~PKR 800mln. To make the bank compliant with the regulatory capital requirement, fresh capital of PKR 200mln would be injected by end-2017. Apna Microfinance Bank, following an aggressive strategy and building on its National level license, has accumulated fast presence (branch network) and sizeable volumes (advances and deposits) in the microfinance space. However, the bank’s current strategy is to capitalize on the already expanded network while overcoming its woes and consolidating its position. The management has revamped its policies and procedures and expects to improve the overall risk environment of the bank. Along with improvement in overall risk culture, keeping check on the administrative and operating expenses is the focal point of the management. The management intends to expand its deposits and advances base in line with its well-laid branch network. This should benefit the bank’s liquidity profile and profitability.

The ratings highlight the need to timely arrest the deteriorated equity base and limited core profitability. Achievement of operational profit on sustainable basis along with good asset quality - at par with industry - are requisites. Strengthening of governance framework and related systems and controls are important. The ratings are kept under watch to monitor progress on capital compliance and breakeven from core operations.

About the Entity
Apna Microfinance Bank listed on Pakistan Stock Exchange, was established under the Microfinance Institution Ordinance 2001. It started operations in 2005. Headquartered in Lahore, it operates a nationwide network of 116 branches. The overall control of the company vests in seven member BoD. Mr. Gulistan Malik was appointed as President and CEO during the year. He is assisted by team of experienced professionals long associated with the company.

United International Group (UIG) controls majority shareholding in the bank through different group companies and individuals. The Company is led by strategic vision of the chairman of the Group, Mian M. A. Shahid, an insurance veteran. The group's presence in insurance is being augmented through takaful operations in both insurance companies. Other ventures include tracking business, farming, and software.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.